Standard & Poor’s agency downgraded France’s credit rating by one notch to “AA” with a stable outlook on Friday, dealing a fresh blow to French President François Hollande’s Socialist-led government as it struggles to turn the economy around.
The Standard and Poor's agency on Friday downgraded France's credit rating by one notch to "AA," with outlook stable, dealing a further blow to President Francois Hollande's embattled Socialist government.
France's 10-year borrowing costs jumped after the announcement, with bond yields increasing to 2.389 percent from the 2.158 percent at the close of trading on Thursday.
S&P said it was cutting the rating from the previous "AA+" because government reforms would not raise medium term prospects and because lower economic growth was constraining the government's ability to consolidate public finances.
"We believe the French government's reforms to taxation, as well as to product, services and labour markets, will not substantially raise France's medium-term growth prospects and that ongoing high unemployment is weakening support for further significant fiscal and structural policy measures," the ratings agency said.
"Moreover, we see France's fiscal flexibility as constrained by successive governments' moves to increase already-high tax levels, and what we see as the government's inability to significantly reduce total government spending," it said.
French Finance Minister Pierre Moscovici in a statement deplored "the critical and inexact judgements" made by the agency.
And Prime Minister Jean-Marc Ayrault said that "France's ratings remains among the best in the world" and that the agency "does not take into account all the reforms" made by the government.
S&P said it expected net general government debt to peak at 86 percent of gross domestic product (GDP) in 2015 and unemployment to remain above 10 percent until 2016.
"Current unemployment levels are weakening support for further fiscal and microeconomic reforms, and are depressing longer term growth prospects," it said.
The stable outlook means there is a less than a one-in-three chance that the agency would change France's rating over the next two years.
Date created : 2013-11-08